Mutual Fund Redemption – How to Exit & Redeem your Mutual Fund Units
It is said that knowing about the redemption process is as important as the investment process. We all invest in various mutual fund schemes for our long-term financial goals, like building a fund for a child's higher education or building a retirement fund for ourselves. While we understand the investment procedure in detail and get started with our investments, it is equally important for us to understand the redemption procedure.
What is mutual fund redemption?
The mutual fund redemption process involves selling your mutual fund units back to the Asset Management Company (AMC) at the prevailing net asset value (NAV). For example, Dinesh owns 100 units of the ABC Mutual Fund Scheme. He sells the 100 units back to the AMC at a NAV of Rs. 25 per unit. Dinesh submits an online request to redeem mutual fund units. During the redemption process, Dinesh’s folio will be debited with 100 units of the ABC Mutual Fund Scheme, and his bank account will be credited with the redemption amount of Rs. 2,500 (100 units x Rs. 25 per unit).
The redemption process is also known as selling or exiting the mutual fund scheme.
When should an individual redeem mutual fund units?
There are various circumstances under which an investor may decide to redeem their mutual fund units. Some of these include:
The financial goal has been achieved
- Investors invest in mutual fund schemes for various financial goals. When the financial goal has been achieved, the individual will need to redeem the mutual fund units. This is the ideal reason for redeeming mutual fund units.
The mutual fund scheme has not performed as expected
- An investor may have invested in a particular mutual fund scheme with some expected rate of return. Suppose the scheme has not performed as expected consistently for a long period. In that case, the investor will have to redeem the units and invest the redemption proceeds in another mutual fund scheme.
- An investor may have an emergency such as hospitalisation in the family or loss of job due to which there will be a need for funds. If the individual is not able to make any alternate arrangement for funds, they may have to redeem the mutual fund units.
The market is trading at high valuations
- Often, stock markets are expected to trade near their historical long-term averages. These may include the five-year or ten-year price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, or any other widely tracked parameter. When the market trades at a significant premium to the long-term averages, the investor may redeem the units as a precaution and invest in a debt fund. The investor may wait for the market valuations to return near the long-term averages and then redeploy the money.
Mutual fund redemption online directly through the AMC
These days, many investors invest directly through the AMC website. In this case, they will have to do the redemption through the AMC. The redemption can be through the AMC website. The investor will have to log in to their account, select the folio, and redeem the units.
While redeeming, the investor gets various options such as whether they would like to redeem a specific number of units, or a specific amount, or redeem all the units. The redeemed units get debited from your folio account, and the redemption proceeds are credited to your bank account.
Redeeming mutual funds through trading or demat account
Apart from buying the mutual fund units directly from the AMC, they can be bought through other channels such as trading or demat account, mutual fund distributor, or other intermediaries. Mutual fund units bought through the trading or demat account can be redeemed by logging into the stock broker’s website with your login id and password.
Once you log in, go to your investment portfolio. Select the mutual fund scheme that you wish to redeem. Select the units or amount that you wish to redeem, and proceed ahead. The units will be debited from your portfolio and the redemption proceeds will be credited to your bank account.
Redeeming mutual funds offline through an agent or distributor
If you have bought the mutual fund units through an agent or distributor, you can redeem the units through them. If they have an online facility for redemption, you can log in and place a redemption request. You can visit them offline and submit a redemption request if they don't have an online facility. They will submit the redemption request with the AMC, and the redemption proceeds will be credited to your bank account.
How to redeem mutual fund units using Glide Invest App
If you have invested in mutual fund schemes through the Glide Invest App, you can place a redemption request through the App. You need to log in and visit your investment portfolio section. Select the scheme and the units you wish to redeem and place the request. Glide Invest will forward your redemption request to the AMC. The AMC will debit the units and credit the redemption proceeds to your bank account.
Mutual fund redemption time
The time taken to process your redemption request will depend on which day and what time you have submitted the redemption request. If you have submitted the redemption request for your equity mutual funds within the cut-off time (before 3:00 PM), the same day net asset value (NAV) will be applied. The redemption proceeds will be credited to your bank account on a T + 3 working days basis.